Friday, October 10, 2008

The Prime Minister has just announced legislation that will guarantee the first $20,000 of each individual bank deposit. Bloody hell!

What does that imply about the rest of each bank deposit? (One of my family's deposits is quite big at the moment.)

It was fine when there was no explicit guarantee of bank deposits - that mean that everyone was in the same boat. But not now. This wise thing would be to split our family's deposit into a number of individual $20,000 accounts.

Other depositors will think the same way. As John Quiggin says, it'll lead to large-scale withdrawals:

"The possibility of this turning into a run is far from remote".

As commenter Bingo Bango Boingo says:

"Is he mad? One day he says bank savings are safe, the next he comes out with a policy that very strongly signals they are nothing of the sort."

This surely can't last. He'll have to guarantee the lot. No real loss, they have been effectively guaranteed anyway.